Fung Yuk Oi Esther 52285698 LW2602B Contract II Word Count: 1498
Question:
“The Misrepresentation Ordinance is a poorly drafted piece of legislation and claimants are better off relying on the common law.”
Critically analyse this statement with reference to the relevant statutory provisions and cases (including from the overseas jurisdictions).
Statutory law is created by the legislation in order to formalize existing law in a
particular country, some see these written law as poorly drafted, with unjust,
ambiguous wordings and that are not very elaborated in order to be equivalent to real life situation. Under the common law system where the legal system is highly
weighted with precedential law that binds with future decisions, one may argue that the common law is a more effective set of law to utilize in respect of equity,
expediency and efficiency. In this essay, the use of common law and
Misrepresentation Ordinance will be discussed and analysed according to their scopes, hence to justify the benefit and detriments of the two litigation systems.
In the last few decades of the ninetieth century, the law of misrepresentation was a
much litigated area of the law, the law of misrepresentation become ‘bogged down in a mass of technicalities’ and it was not until 1967 that an attempt was made at reform with the Misrepresentation Ordinance. There are three types of misrepresentation that some were never explicitly defined in the Misrepresentation Ordinance but in the
common law, and each give rise to different remedial consequences. They are
fraudulent misrepresentation, negligent misrepresentation and innocent
misrepresentation. One could be aware of that all types of misrepresentation entitle the representee to rescind the contract but not all types of misrepresentation give rise to an action for damages. Therefore distinction should be drawn between one and the other in order to permit possibly a greater measure of recovery.
The first type of misrepresentation is fraudulent misrepresentation. Apart from being a ground on which a contract may be set aside, fraudulent misrepresentation also
constitutes the tort of deceit. The representee must show that the representor was
deliberately dishonest in making his statement or was at least reckless as to its
accuracy. The requirement of a ‘statement’ has in fact been interpreted fairly broadly
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Fung Yuk Oi Esther 52285698 LW2602B Contract II Word Count: 1498
in the common law too. The court takes account to the conduct of the claimant, and
the wide scope of interpretation could be indicated in the case of Curtis v Chemical
Cleaning & Dyeing Co. Ltd1, where Lord Denning stated: ‘Any behavior, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other … if it conveys a false impression, that is enough. ’ The interpretation is very subjective and intuitive that one would question on the fairness of common law. On the other hand, the word ‘fraud’ in the Misrepresentation Ordinance bears a wide meaning in common parlance as well, and one would claim its flexibility of interpretation is to be too wide and therefore leads to unjust judgment. However, utilising the common law, in the
case of Derry v Peek (1889)2, the meaning of ‘fraud’ in law has become much
narrower by establishing the three propositions to proof fraudulent misrepresentation. Regarding to the remedies, given in Derry,s case that dishonest was proved and
defendant would be liable for all consequential losses, notwithstanding it was
foreseeable or not. However the court in this case, permitted recovery of damages for loss which has been increased by the time of judgment. Some would see the
advantage of utilising the Misrepresentation Ordinance as on the measure of damages as recoverable under s.2(1), since is the measure of damages for the tort of deceit,
indicated in the case of Royscot Trust Ltd v. Rogerson3. The Court of Appeal held that damages under s.2(1) were to be assessed as if the defendants had been fraudulent and whether or not the loss was foreseeable. Therefore, some may see the effect of
Royscot is to reduce the practical significance of the tort of deceit, and found it ineffective to prove that the representor was fraudulent when one can recover the same measure of damages under s.2(1) without even having to prove that the
representor was negligent.
The second type of misrepresentation is negligent misrepresentation at common law. Before the case of Nocton v. Lord Ashburton4, it was thought that negligent
misrepresentation was not actionable in tort because liability in tort arouse only in cases of fraudulent misrepresentation. In that case, the House held that negligent misrepresentation was actionable only where there was a pre-existing contractual
1 Curtis v Chemical Cleaning & Dyeing Co. Ltd [1951] 1KB 805
2 Derry v Peek (1889) 14 App Case 337.
3 Royscot Trust Ltd v. Rogerson [1991] 2 QB 297
4 Nocton v. Lord Ashburton [1914] AC 932
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relationship between the parties or where the parties where in a ‘fiduciary
relationship’.5 Since then, this restrictive approach prevailed in England. However in 1964 the case of Hedley Byrne v Heller6, the Lordship had significantly widened the scope of liability in tort for negligent misrepresentation. The first situation arises
where the representation is made by a third party who is not party to the contract, but s.2(1) only applies where the representation has been made by the other party to the contract, also It may be well to recourse to the common law arises where the contract between the parties is void ab intio, where s.2(1) cannot be applied. Therefore, some may conclude that the common law actually provides flexibility in law, its ownership of ‘policy’ consideration develop judgment further and provides a wider scope.
The statutory claim of damages for negligent misrepresentation in the scope of s.2(1) is in a sense wider than that existing at common law, since it does not depend upon
the existence of any kind of special relationship, thus avoiding the difficulties inherent in establishing the existence of such a relationship. This was of crucial significance in Gosling v. Anderson7, as Roskill LJ stated that, if the action been heard before 1967, the claimant’s action would have failed unless she had been able to prove fraud. But in that case, she was able to rely on s.2(1) of the Ordinance and was entitled to
damages for the misrepresentation. It is in another sense narrower that the Ordinance requires representor to prove that he had reasonable grounds to believe and did
believe up to the time that the contract was made that the facts represented were true, otherwise held liable.8 Whereas at common law it is for the representee to prove that the representor was negligent, indicated in the case of Cheltenham Borough Council v Laird9.10 One may argue that it is a difficult task for a representor to discharge the
onus of proof under s.2(1), using the case of Howard Marine v. Ogden11, therefore deny the effectiveness of the Misrepresentation Ordinance.
5 Wheeler. S, Shaw. J, Contract Law, Cases, Materials and Commentary (1994), Clarendon Press
6 Hedley Byrne v Heller [1964] AC 465
7 Gosling v. Anderson [1972] EGD 709
8 Lee. M., Contract Law in Hong Kong (2011), Sweet and Maxwell, P. 277
9 Cheltenham Borough Council v Laird [2009] EWHC 1253 (QB)
10 Poole. J, Text Book on Contract Law (2010), Oxford University Press, P.520-521
11 Howard Marine v. Ogden [1978] QB 574
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For Innocent Misrepresentation, the wordings of s.2(1) of Misrepresentation
Ordinacne has once again narrow down the scope, restricted to those circumstances where the representee not only believed the statement to be true, but also to establish that he had reasonable grounds to believe in the truth of his statement. In common
law, the only remedy is rescission only can be exercised if the right to rescind had not been lost or barred. s.2(2) clearly referes to the discretion as existing where the
injured party would otherwise be entitled to rescind. However the consequence of the application of such a principle is that no useful remedy will exist, due to the loss of rescission, there is no discretion to award damages, and therefore was criticized by Atiyah and Treitel12
Some regard the Misrepresentation Ordinance as a poorly drafted piece of legislation, as there are contradictions between the remedy of rescission and s.2 (2). As in some circumstance, a misrepresentation may be left with no effective remedy.13 The
conventional interpretation was challenged by Jacob J in Thomas Witter Ltd v TBP Industries Ltd14, he found out that ‘the power to award damages under section 2(2) does not depend upon an extant right to rescission- it only depends upon a right
having existed in the past’ . One may therefore deny the use of Misrepresentation
Ordinance because the contradictions may lead to uncertainty and ambiguous
reasoning. They see common law as judgments that are more flexible, and may judge according to the different material facts. There were cases where they did not follow what was judged in Thomas,s case15, for example Government of Zanzibar v British Aerospace (Lancaster House) Ltd16 and Pankhania v Hackney London Borough
Council17. Hence the availability of rescission and the s.2(2) discretion has shed light on the need of reconsideration of the Misrepresentation Ordinance.
The Ordinance is also considered to be unreasonable because it could apply to
exclude liability for fraud suggested in s.3, indicated in the case of Thomas Witter v
12 (1976) 30 MLR 369
13 Poole. J, Text Book on Contract Law (2010), Oxford University Press, P.534-535
14 Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573
15 Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573
16 Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333, [2000] CLC 735
17 Pankhania v Hackney London Borough Council [2001] EWHC 2441 (Ch), [2002] NPC123
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TBP Industries Ltd18. One would argue that what really matters is the interpretation of a ordinance, for instance in Inntrepreneur Pub Co. v East Crown Ltd [2000] that
Lightman J has made a judicial explanation of the clause s.3 to determine the scope, so to become the common law, make later decision bind to the previous ones.
In conclusion, although there is much evidence pointing to highlight the idea that the Misrepresentation Ordinance is poorly drafted, it is still crucial when it comes to the measure of damages. It as well provides a more effective requirement of proof,
namely avoid establishing the existence of relationship, the proof of reasonable
ground and the measure of damages for the tort of deceit. Because the scope of the
Misrepresentation Ordinance, as well as the common law is not outlined concretely and also value changes over time, one could not merely rely on either statutory law or common law. Therefore, it is very important to use the Misrepresentation Ordinance and the common law cooperatively instead of one and the other.
18 Thomas Witter v TBP Industries Ltd [1996] 2 All ER 573
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Bibliography:
Books
. Fisher. M. J., Greenwood. D. G., Contract Law in Hong Kong (2011), Hong
Kong University Press, 2nd Edition
. Poole. J, Text Book on Contract Law (2010), Oxford University Press
. Lee. M., Contract Law in Hong Kong (2011), Sweet and Maxwell
. Upes. R, Bennet. G, Davies on Contract (2004), Thomson Sweet and Maxwell, 9th Edition
. Wheeler. S, Shaw. J, Contract Law, Cases, Materials and Commentary (1994), Clarendon Press
Online Resources
. Vitating Factors/ Misrepresentation [Accessed on 28th Feb]
. Misrepresentation Act Claim [Accessed on 27th Feb]
. Misrepresentation Definition
[Accessed on 28th Feb]
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